The Theory of Imperfect Competition Market Equilibrium All firms in this industry are symmetric The demand function and cost function are identical for all rms The method for determining the number of firms and the average price charged involves three steps We derive a relationship between the number of firms and the average cost of a typical firm We derive a relationship between the number of firms and the price each firm charges We derive the equilibrium number of firms and the average price that firms charge Copyright C 2003 Pearson Education, Inc Slide 6-20Copyright © 2003 Pearson Education, Inc. Slide 6-20 • Market Equilibrium – All firms in this industry are symmetric – The demand function and cost function are identical for all firms. – The method for determining the number of firms and the average price charged involves three steps: – We derive a relationship between the number of firms and the average cost of a typical firm. – We derive a relationship between the number of firms and the price each firm charges. – We derive the equilibrium number of firms and the average price that firms charge. The Theory of Imperfect Competition